S&P still likes eBay

On Monday I spoke with Scott Kessler, S&P's Senior Director of Information Technology Research. He has a strong buy recommendation on eBay, Inc. (NASDAQ:EBAY) but is less excited about Microsoft Corporation (NASDAQ:MSFT), Google Inc. (NASDAQ:GOOG), and Yahoo Inc. (NASDAQ:YHOO).

Since I spoke with him in late July, he has had some good calls. He became bullish on Google in early August after which the stock rose from $380 to $480. As Google approached his $500 target, Kessler changed his call to a hold. He also was bullish on Microsoft which rose from $22 to $28 before changing to a hold rating as he felt that with a target price of $31 the potential upside in the stock was limited. And he remains skeptical of Yahoo, due to his concern about its management and business strategy.

S&P expects the S&P 500 to reach $1,510 by the end of 2007, a 7% increase over its current level. Kessler feels that while economic growth will slow in 2007, the decline will not be significant. However, he expects faster growth in Europe and Asia than in the U.S.

The slowing growth could harm eBay but Kessler feels that PayPal -- which represents 20% to 25% of eBay's revenues -- represents an under appreciated growth opportunity. In Kessler's view, PayPal could grow to be a third of eBay's revenue and it will encourage more people around the world to do more business with eBay. He believes that eBay will have a tough time competing in the important China market -- where the leading competitor Taobao is giving away the service. However, he expects eBay to earn $1 a share in 2007 and he views the stock as inexpensive at its current $32.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, and a Professor of Management at Babson College. He has no financial interest in eBay, Google, Microsoft, or Yahoo.

Source: http://msft.bloggingstocks.com/2006/12/13/sandp-still-likes-ebay/